Microsoft Office Tutorials and References

In Depth Information

**Depreciating the Finer Things in Life**

depreciation can be applied evenly over all the periods. In this case, each

period of the asset’s life has an equal amount of depreciation to apply. The

different depreciation methods are summarized in Table 6-1.

The depreciable cost is the original cost minus the salvage value.

Table 6-1

Depreciation Methods

Method

Comments

Excel Function

That Uses the

Method

Straight

Line

Evenly applies the depreciable cost (Cost –

Salvage) among the periods. Uses the formula

(Cost – Salvage) ÷ Number of Periods.

SLN

Sum of

Years’

Digits

First sums up the periods, literally. For

example, if there are five periods, then the method

first calculates the sum of the years’ digits as

1 + 2 + 3 + 4 + 5 = 15. Creates an accelerated

depreciation schedule. See Excel Help for

more information.

SYD

Double

Declining

Balance

Creates an accelerated depreciation

schedule by doubling the Straight Line depreciation

rate but then applies it to the running

declining balance of the asset cost, instead of to the

fixed depreciable cost.

DDB, DB

Figure 6-2 shows a worksheet with a few different depreciation methods. The

methods use the example of a delivery truck that costs $35,000, is used for

12 years, and has an ending value of $8,000. An important calculation in all

these methods is the depreciable cost, which is the original cost minus the

salvage value. In this example, the depreciable cost is $27,000, calculated as

$35,000 – $8,000.

In the three depreciation methods shown in Figure 6-2 — straight line, sum of

the years’ digits, and double declining balance — all end having the

accumulated depreciation at the end of life equal to the depreciable cost, or the cost

minus the salvage.

However, each method arrives at the total in a different way. The Straight

Line method simply applies an even amount among the periods. The Sum of

Years’ Digits and Double Declining Balance methods accelerate the

depreciation. In fact the Double Declining Balance method does it to such a degree

that all the depreciation is accounted for before the asset’s life is over.